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Will Higher Taxation save the West from its Failures?

The deepening debt crisis in Europe, made finance ministers seek solutions. Greece, whose economy failed in 2009 and since then had received numerous financial aid packages from IMF and ECB
was urged to increase taxes, especially among the wealthy citizens.
Athens was accused of avoiding tax collection and not prosecuting
thousands of taxpayers suspected of sending money illegally abroad. This
inaction costs Greece near €28 billion or $36.93 billion, which is
nearly 15% of the country’s economic output. The continuing debt crisis
is threatening Greece’s presence in the single currency union and
causing severe recession.Portugal’s President Anibal Cavaco Silva has signed a law introducing big tax increases. The new budget
tool effect on Tuesday January 1st, but according to correspondents it
might be challenged in the constitutional court. The standard income tax
rate is rising from 24.5% to 28.5%. Analysts predict 3% economy
decrease in 2012, while the expectations for 2013 are at least 1%, which
will bring a third consecutive year of recession. Meanwhile savings
have dropped to €78 billion and unemployment rate has risen almost 16%.

France’s Constitutional Council rejected
the 75% tax rate supported by President Francois Hollande. The high
taxation is intended for individuals making more than €1 million. The
Council defended its decision with the arguments that the new tax
"failed to recognize equality before public burdens", since it only
apply to individuals, not to households. This means that if one person
in a family makes above €1 million, he would have to pay, but if two of
them are making €900,000 each would not have to pay. However the new
legislation started a heated debate in the publicity as many wealth
French citizens decided to change their citizenship and move to Belgium.
One of France’s most famous actors Gérard Depardieu was accused by the
government for lack of patriotism after he relocated to Belgian city
Néchin.After
the economic failure and increasing government debt to some of the
European members, finance ministers are trying to bail out their
countries by immensely increasing taxes or austerity measures, which are
causing even higher cuts in economy’s growth.

On the other side of the Ocean

After a deal was reached on the so-called fiscal cliff and
US investors managed to take a deep breath the average household will
have to do the donkey work. The Congress decided to put an end on the
Social Security tax cut, as the rate is raising back to 6.2% from 4.2%.
To an individual earning $50,000 annually, this increase will cost near
$1,000 and for a family with two well-paid members almost $4,500. The
other increase in taxation comes on household incomes above $450,000 and
individuals making more than $400,000, who will pay the Clinton-era
39.6% rate on ordinary income and 20% on capital gains and dividends.

Obama and his lawmakers increased taxes by almost $600 billion, without
establishing any major cuts in government spending. What is more, for
every $1 in spending cuts there are $41 in tax raising. This means that
almost 77% of the American population will now pay higher federal taxes
with the increase in Social Security tax.

According to Mark Zandi, Chief Economist at Moody’s Analytics, this
increase in taxation will decrease economy growth by 0.6% in 2013 and
taxation on well-paid Americans will cut 0.15%. Analysts predict that
these tax increases will lead up to the same decline and stagnation as
in Europe.